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Tuesday, November 1, 2011

Anant Raj reported1Q earnings at Rs351mn against our estimate of Rs222mn due to higher recognition of revenue from the New Gurgaon project. We reiterate our Buy rating on Anant Raj with PO of Rs105 (Rs120 earlier) with 63% potential upside. The lower PO factors in increase in debt by 25% to Rs13bn expected to be invested in execution and land purchases. While the delay in Delhi projects continues to be overhang, we expect the focus to shift to new township project in Gurgaon due its large size (33% of NAV) and attractive location.

Gurgaon township launch in 3Q key trigger for stock

We expect launch of Gurgaon township spread over ~150acres along Golf course ext road in 2HFY12 to drive performance in FY12-13. The project accounts for 33% of NAV and over 50% of revenue for FY12-13, even after factoring in 20% lower prices to account for a possible price correction in Gurgaon. The land parcel has been notified by the government to be included in Gurgaon master plan.

Improving rentals and peaking debt

Anant Raj launched its mall in Delhi in 2Q with 50% occupancy and expects the rental income to accrue from 3Q at Rs30mn/month. We expect the mall will lead to 50% increase in rental income for FY13 to Rs1.5bn. Though leasing in the Manesar IT Park remains lukewarm with no major incremental leasing. We expect post the recent debt raising exercise, all its capex/land purchase plans are well funded and debt is expected to run down from FY13.

Attractive valuation, trading at 45% discount to book

It is trading at deep discount of 45% to its book value which we think is unjustified given solid balance sheet with low leverage and strong rental income.

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